What does capital gains tax apply to?

Capital gains tax applies specifically to the profit earned from the sale of an asset or investment. This tax is incurred when an individual sells a capital asset, such as stocks, bonds, real estate, or other investments, for more than its purchase price. The gain represents the increase in value of the asset over the time it was held, and capital gains tax is calculated based on this profit.

This concept is fundamental in understanding taxation related to investments, as it ensures that individuals are taxed on the income generated from their investments when they realize that profit through a sale. The rate at which capital gains tax is applied can vary based on how long the asset was held, with lower rates often applied to long-term gains compared to short-term gains.

Other options relate to different aspects of taxation; for instance, taxes on retail sales deal with transactions of goods, rental income pertains to earnings from property leasing, and inheritance tax focuses on wealth transfer upon death. Each of these has a distinct tax implication separate from the capital gains tax.